Lowanda Harvey couldn't have been further from her dream of owning a home last year. A long-term relationship had ended, leaving her single, and a pile-up of medical problems made her unable to work. She couldn't make ends meet and wound up homeless.
"I had lost everything I had," Harvey said. "I was in a shelter with seven kids. I was desperate."
After going back to school, Harvey earned certifications in the building trades and now she makes $28 an hour as a construction worker.
Harvey may be on the road to financial security now that she has completed the first 12 weeks of a two-year life coaching and financial education program through Build Wealth Minnesota, a non-profit in north Minneapolis that largely serves African-American clients of modest means.
The program helped her realize that with careful planning, she could eventually own a home.
"I thought I would never be able to get into a house and now it's looking like I can get into a house in the next six months just from going to this program," she said.
Like other minorities in Minnesota, Harvey, who is black, may face many hurdles to buying a home. With lower educational attainment, income and savings rates than their white counterparts, some people of color may be less likely to qualify for mortgages — or to apply for them. Discrimination could also play a role in lowering minority home ownership rates.
But right now the folks at Build Wealth Minnesota are seeing another big impediment: tight credit.
They've helped Harvey boost her credit score and estimate it's now 560. But that's still too low for many mortgage lenders.
According to a report from the Urban Institute and Moody's Analytics, lenders are demanding average credit scores of as much as 750, or 50 points higher than the typical American's credit score. It's also higher than the average score a decade ago, when it was easier to maintain a good credit score. The mass layoffs and foreclosure crisis of the Great Recession had not yet wreaked havoc.
"Lenders are very cautious, even compared to more normal times," said Mark Zandi, an economist with Moody's and co-author of the report on tight credit. He said banks have adopted tougher standards in part because of past mistakes.
"They made a lot of loans during the bubble that cost them a lot of money and hurt everybody," he said.
Governmental agencies that also lost money when the housing bubble burst are contributing to the chill on mortgage lending.
Most mortgages are sold to or insured by Fannie Mae, Freddie Mac or the Federal Housing Administration and lately, those institutions have been playing a game of hot potato. If the mortgages go into default, they toss them back to the lenders who originated them, saying their credit standards were too loose, even if that's not always clear, Zandi said.
That makes banks even more gun shy, and constricts credit.
Zandi's report doesn't focus on minority homebuyers. But he said they are likely to be among those hurt worst by the current credit environment.
"I think a lot of the potential homebuyers with credit scores somewhere between 700 and 750 — that's the group that in more normal times would be able to get a loan but can't today — many of those groups are minority groups," he said. "And I think they're credit-worthy borrowers; they'd be great home owners. It would be good for them. It would be good for their community. It would be good for the economy."
Some experts point to yet another headwind for low-income and minority homebuyers. Their loans tend to be at the smaller end of the scale, which, with beefed up fee restrictions, have even smaller profit margins than they used to.
Still, Wells Fargo, the nation's largest mortgage lender, recently announced it will accept credit scores as low as 600 for FHA-backed loans. Experts say that move is already prompting other lenders to loosen their requirements. But the progress is incremental.
During a weekend seminar at Build Wealth Minnesota, the organization's director, David McGee, warned clients that home ownership is not something to rush into.
"Some of us aren't ready for home ownership," said McGee, a former banker. "It does take time."
With credit still at historically tight levels, McGee's clients may have no choice but to wait.